Case studies (2)

On October 9, 2017 after a 20-year long battle, the Indonesian Supreme Court ordered the provincial and central governments to end the water privatization and return the water services to the public water utility. The verdict grants the appeal of Jakarta residents in the citizen lawsuit aimed at annulling the water privatization concession contracts. The citizen lawsuit was filed in 2012 by the Coalition of Jakarta Residents Opposing Water Privatization (KMMSAJ).

The Court actually reached its decision in April 2017, but this was made public only in October. In that six-month period, the owners of the two companies operating in Jakarta sold all of their shares.

SUEZ sold all its shares in Palyja on the 14th of September 2017 to Cantonment Investments Limited and Belle Peau PTE Ltd for $23 million (€ 19.6 million). SUEZ had 51% of the shares in Palyja. The other 49% of Palyja were owned by Astratel, a subsidiary of PT Astra International Tbk, together with Citigroup. They also sold the entire 49% of their shares in Palyja to an Indonesian company called PT Mulia Semesta Abadi in September 2017.

Previously, in June 2017, the Singaporean based company Acuatico, which held 95% of PT Aetra Air Jakarta sold their shares to Moya Indonesia Holdings for $92.87 million. Additionally, Moya Indonesia Holdings paid Actuatico’s debt of $152.31 million. Moya Indonesia Holdings, is a water company owned by Indonesian conglomerate Salim. Salim was also the original partner for the French firm Suez that first held one of two water contracts for the city.

Who the ultimate the beneficiary owners are remains unclear.

We want to ensure that the mandated return to public ownership and transition is done in a transparent and accountable manner, in such a way that the new owners don’t squeeze out further unearned profits, and impose large debt burdens on the government of Jakarta and its people.

We need to warn against lawsuits using international investor protections mechanisms which can be used to delay endlessly the decisions of the courts and cost taxpayers millions in unnecessary legal fees and possible liabilities.

“This decision is a success for the Jakarta citizens and workers, but also for the global water movement. It is further proof of the misguided and myopic World Bank and Asian Development Bank privatization strategies, which are not only unwelcome, but are illegal.”

Rosa Pavanelli, PSI General Secretary

CAMPAIGN NEWS (10)

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Indonesian Supreme Court Terminates Water Privatization!

A coalition of activists, trade unions and Jakarta residents filed a class-action lawsuit in 2012 claiming that the companies failed to guarantee people's right to clean water. The companies both engaged in price differentiation that disproportionately taxed low-income residents and afforded them huge profits. The coalition won its case in the Jakarta District Court in 2015, but it took two more years for the Supreme Court to uphold its constitutionality.”

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Jakarta Closer to Regaining Public Control of Water

The Government of Jakarta is under pressure to comply with a 2017 Supreme Court decision that declares the two 20-year old private water concessions illegal and compels the government to assume public control of water services and manage water under the principles and values of the UN human right to water.

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Jakarta's water woes

A court victory has rewarded civil society efforts to end water privatization in the Indonesian capital but many questions remain unanswered. Jakarta’s water privatization story began in June 1991, when the World Bank agreed to lend the city’s public water utility, PAM Jaya, $92 million for infrastructure improvements but also pushed for privatization.

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Water for all in Jakarta

Mounting evidence shows less public participation in clean water management in Jakarta has led to high water rates and poor performance. The Jakarta Post says that “instead of confusing the public with legal technicalities of contract restructuring, Jakarta should just return water management to the public. Like Paris, it should form a Water Observatory, a space where citizens can ensure that the water company is publicly held accountable.” The media outlet was responding to a demonstration by Jakarta residents on World Water Day demanding “that water management be returned to the public, as part of a global trend called ‘remunicipalisation.’”

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Group challenges judicial review on water privatization

Indonesia: The Coalition of Jakarta Residents Opposed to Water Privatization (KMMSAJ) has submitted to the Central Jakarta District Court a counter memorandum to the judicial review on the water privatization case filed by the Finance Ministry. “‘The Supreme Court has ruled in favor of civil society. We're very disappointed that the Finance Ministry still cannot accept it,’ the plaintiffs' representative, Nurhidayah, said on Tuesday, as quoted by kompas.com. Through the judicial review, the Finance Ministry is attempting to challenge the Supreme Court's decision.”

Struggle for Remunicipalisation

Until the end of 2014, the process to take over water services from private operators, despite the government’s will, was at stagnation.

In 2015, there were two significant court rulings which created new momentum. First, the Constitutional Court ruled on 18 February to annul the Water Resources Law No. 7/2004 on grounds that water resources should be managed by public body for the public benefit. It was followed by the Central Jakarta District Court’s ruling in 24 March 2015 which annulled the contract agreements of water services privatisation in Jakarta. Water privatisation was deemed negligent in fulfilling the human right to water for Jakarta’s residents. The court also ordered the water services to be brought back to the state-owned water company. It was a victory of persistent resistance and mobilisation by the citizen coalition KMMSAJ.

Soon after Central Jakarta District Court issued its ruling, the private water operators appealed to the High Court and lobbied the central government, namely Ministry of Finance and Ministry of Public Works, which are among defendants in the citizen lawsuit. The central government (President, Vice President and Ministry of Finance) challenged the court ruling. The private operators have also taken the case to the Singapore International Arbitration Court.

This has effectively deterred the city administration from taking over water services as the contract agreements which give private operators an exclusive right to deliver water services is still effective. It is likely that the private operators are buying time through legal tactics in order to maintain privatised water services as long as they can. The legal process in the High Court and later in international arbitration court, may take years.

One of the companies is now owned by Salim Group, which belongs to the family of Suharto’s closest crony, and the person who initially pushed the privatization in 1996-7. The other company is now owned by two shell companies listed on the Singapore Stock Exchange.

“The future of Jakarta water will require time, patience and lots of political good will. We are committed to helping the Government of Jakarta in this rebuilding process. We will seek out public-public partnerships which should help to rehabilitate the city-owned water operator PAM Jaya’s capacity in peer to peer solidarity cooperation. ” ​

Fiona Dove, Transnational Institute - TNI

CAMPAIGN MATERIALS (7)

Background information

Jakarta’s water service was privatized in 1998. A year earlier, the state-owned water company PAM Jaya (Jakarta Drinking Water Company) signed a cooperation agreement with two private companies, Thames Water and Suez Lyonnaise des Aux, who established Indonesian companies with their local partners.

Operating Jakarta’s water service has long been the sole right of PT PAM Lyonnaise Jaya (Palyja) and PT Aetra Air Jakarta. Suez, a French origin global water comapny keeps its majority share in Palyja (51 per cent) ; while Aetra, which British water companyThames left in 2006, is now owned by PT Acuatico Pte. Ltd (95 per cent). Jakarta is divided between these two operators because of the flow pattern of the Ciliwung River.

Three years after the implementation of the cooperation agreement, in September 2001, the Jakarta Water Supply Regulatory Body (RB PAM Jaya) was established. It functions to keep the balance amongst the parties in the cooperation agreement, and other institutions.

It was not until 2011 that PAM Jaya openly expressed disappointment with the contract agreement and proposed renegotiation. The director of PAM Jaya stated that privatisation would sing the public water utility into huge financial losses. In 2012, PAM Jaya’s debt to Palyja reached IDR 7.9 trillion (USD 878 million) and if the current system continues, by 2022, when the privatization agreement ends, PAM Jaya’s loss will be IDR 18,2 trillion (USD 2.04 billion).

The renegotiation process did not run smoothly. Aetra was the first to agree to compromise with some renegotiated items, which were included as addendum to the cooperation agreement in December 2012. The approved items were: to lower the Internal Rate of Return, which was considered too high, from 22 to 15.8 per cent (the Financial and Development Supervisory Agency, BPKP, evaluated the reasonable rate for water services in Jakarta at 14.68 per cent); to eliminate current shortfall debt; and to decrease the leakage level from 29 to 25 per cent. Palyja, on the other hand, refused to make any changes.

The cooperation agreement has been problematic because of its emphasis on the private operators’ business profit. The payment mechanism adopted in the contract agreement differentiates between “water charge” and “water tariff”. The former is the rate paid by PAM Jaya to the private operators, while the latter is the rate paid by customers to PAM Jaya. The water charge is subject to adjustments regardless of policy decisions related to the water tariff.

The initial water charge as of 1 April 2001 was IDR 2,400, and was to be adjusted every six months. This soon created a structural problem because PAM Jaya did not have similar flexibility in increasing water tariffs because most residents could not afford it. The water charge could be raised liberally by the private operators without considering the water tariff policy, guaranteeing continued private profits. For PAM Jaya, every water charge increase that was not followed by a parallel water tariff increase led to a financial shortfall.

This shortfall has not been small. For example, Palyja’s official figures claim 12 per cent of its consumers are poor, so the tariff used for them is a Group II tariff. In December 2009, this tariff was IDR 1,050 per cubic metre. The water charge applied in the same period was IDR 7,125 per cubic metre. The difference of IDR 6,075 per cubic metre gap was borne by PAM Jaya and considered to be PAM Jaya’s debt to Palyja.

This brought the government to issue a policy that allowed raising the water tariff automatically every six months, effective from 23 July 2004 to 2007. Jakarta’s water tariff has been increased ten times since privatisation was introduced making it the highest water tariff in South-East Asia.

This structure has caused massive financial losses for PAM Jaya. In 2011, when the President Director of PAM Jaya proposed contract renegotiation, financial loss was evaluated at IDR 154.3 billion, in addition to a decrease in asset value from IDR 1.49 trillion before the privatisation to IDR 204.46 billion in 2014. A letter of support issued by the provincial government of Jakarta later assumed all these losses from public money while guaranteeing excessive revenue for the private operators despite dismal service quality.

At the same time, the cooperation agreement gave much leeway to the private operators in terms of performance targets. The regulation of performance targets, which are important to ensure quality services to citizens, was designed in such a way that the private operators could easily evade them. For instance, technical targets could be amended from time to time in accordance with the private operators’ Financial Projections. The same case applied to the service standards.

Customers have been complaining about the poor quality and quantity of the water they get. The main problem is that the tap water runs dry almost all of the time. Customers have to get water from other sources, such as polluted rivers, wells or from expensive water vendors. This causes not only a financial loss, but also affects citizens’ productivity. Another major problem is the poor quality of water; customers often find their tap water is dirty, which carries health risks.

Even though the resistance against water privatisation is as old as the privatisation itself, it gained momentum in 2011 when residents, water workers and the civil society organisations formed the Coalition of Jakarta Residents Opposing Water Privatisation (KMMSAJ). In January 2012 KMMSAJ also brought to light an alleged corruption case that involves PAM Jaya and the two private operators by petitioning the Corruption Eradication Commission (KPK). This corruption case, currently being investigated by KPK, would involves IDR 561 billion (US$43.2 million). Tempo Magazine, which investigated the case, found a link between this corruption case and the Jakarta gubernatorial election in 2012.

In November 2012 KMMSAJ initiated a lawsuit against water privatisation, accusing the Indonesian government, the Governor of Jakarta, the president of PAM Jaya's and the two private operators Palyja and Aetra of the unlawful arrangement of the water privatisation contract. In this lawsuit, the plaintiff accuses the defendants of negligence by unlawfully arranging the water privatisation contract agreement. Indeed, the contract itself was considered as violating the Constitution and other regulations related with water resources and clean water provision, which require delivery by the state through a public water company.

This lawsuit played an important role for its influence on policy-makers. After the Citizen Lawsuit was launched, Joko Widodo, the previous Governor of Jakarta declared in March 2013 that water privatisation would be ended. In the same year nearly 40,000 complaints were filed by users regarding tap water deficiency. In 2014 Basuki Tjahaja Purnama, the then-deputy governor of Jakarta, confirmed that the government was considering the acquisition of the private firms' shares through Jakarta's public water utility PAM Jaya. In response the court postponed the verdict twice, giving the Governor and the private operators time to come to a settlement on the acquisition of Palyja and Aetra's shares through the public water utility PAM Jaya.

Key actors

The provincial government of Jakarta. The provincial government of Jakarta is the most powerful actor in Jakarta’s water management system. It is able to appoint the PAM Jaya director, approve domestic and foreign debt and make other major decisions, set the water tariff, and as signatory of the cooperation agreement it is able to terminate the privatisation agreement.

PAM Jaya- the state-owned water company. The cooperation agreement cuts off PAM Jaya’s power. It has no right to see the private operators’ financial reports, and can do nothing when its private partners fail to meet the targets, despite its position as supervisor. However, as shown by PAM Jaya’s latest move, its role can be important as it is has shown by being able to pressure the private operators to renegotiate the contract for a more balanced one.

The private operators. The main characteristic of the private companies, Palyja and Aetra, is that they are politically strong. A string of confrontations between the director of PAM Jaya and private operators that ended with the director’s dismissal confirms this. Besides, the cooperation agreement puts them in a stronger political bargaining position. The private operators’ financial projections determine the water charge, one of the main profit areas for them.

Jakarta provincial parliament. Several members of Jakarta’s provincial parliament, as shown in a string of political statements in the media, agree that the water privatisation is harmful. Even though they are not directly part of the water management, they can have a strong political influence over the governor’s decision.

KMMSAJ. Numerous civil society organizations under a coalition named KMMSAJ (Coalition of Jakarta Residents Opposing Water Privatisation) have been campaigning against water privatization since 2011. The coalition has organised through various strategies, from rallies, public discussions and policy dialogues to requesting information disclosure, circulating petitions and filing a citizen lawsuit.

RESEARCH MATERIALS (5)

Water Privatisation and Remunicipalisation: International Lessons for Jakarta

This report provides background to the current court case and public debate about the privatised Jakarta water concessions. It seeks to provide international empirical experience concerning privatisation and the role of public sector in water services, in the framework of water as a human right. It uses this experience to identify distinctive features of the Jakarta contracts, and to discuss parallels between the experiences in Jakarta and in the rest of the world. Finally, it offers conclusions in relation to the possible future of water services in Jakarta.

Critical Review of Jakarta Water Concession Contract

The process of Jakarta water privatization involved corruption and collusion, to exploit economic profit through the influence of political power. It is not surprising that later the private operators’ performance is not satisfactory. On the other hand, the contract is too advantageous for the private operators: it enables the private operators to gain high profit while being practically free from business risk, enables the performance standard to be flexibly adjusted, puts the water utility into termination trap, and causes prolonged problem of unclear workers’ status. If the current contract is continued, it harms the water utility, workers, and the citizen of Jakarta. Amrta Institute and Public Services International

No Pro-poor Agenda in Jakarta Water Concession

Jakarta water service concession is basically not designed to deliver service for the poor community. This report shows how the payment system applies the disparity between water charge (money paid by the water utility to private operators) and water tariff (money paid by customers to the water utility). The disparity frequently causes shortfall in the water utility’s side because of the wide gap between them. As the water utility’s debt increases, it is reasonable for the private operators to preferably deliver the service to rich-commercial customer because this group pay higher tariff, so that a high income can be maintained. September 2010, produced by Amrta Institute for Water Literacy and KRuHA-people's coalition for the rights to water

The sale of Palyja and Aetra: The two companies that supply drinking water in Jakarta

Since 1997, the supply of drinking water in Jakarta has been entrusted to two private operators — PT PAM Lyonnaise Jaya (Palyja) and PT Aetra Air Jakarta (Aetra). Palyja, whose majority of shares are owned by the French company Suez Environment, manages the water distribution in the West and South of Central Jakarta, while Aetra, owned to 95% by Singapore-based Acuatico, handles the Eastern and Northern parts of Central Jakarta.

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